Stocks plunge after US credit downgrade

Markets sink worldwide. Gold tops $1,700 an ounce. Oil tumbles. AIG might sue B of A over mortgage-related losses.

By TheStreet Staff Aug 8, 2011 7:35AM

TheStreetBy Melinda Peer, TheStreet

 

Updated at 11:59 a.m. ET

 

An unprecedented downgrade to the U.S. government's credit rating battered market sentiment Monday, sending stocks down more than 2% amid ongoing concerns about the global economic outlook.

  

Post continues after video:

At 11:59 a.m. ET, the Dow Jones Industrial Average ($INDU) was down by 287 points, or 2.5%, at 11,158 after falling more than 350 points earlier. The S&P 500 ($INX) was down by 38 points, or 3.2%, at 1,161. The Nasdaq ($COMPX) was falling by 85 points, or 3.4%, to 2,448.


Standard & Poor's cut the U.S. government's debt rating to AA+ from AAA with a negative outlook after the close of trading Friday. Treasury Secretary Timothy Geithner said the move showed "terrible judgment." The ratings downgrade capped a week in which U.S. equities lost 7% amid concerns about the global growth outlook.

On Monday, S&P also cut ratings on Fannie Mae, Freddie Mac and Federal Home Loan Bank to AA+ from AAA. 

 

Aaron Gurwitz, the chief investment officer of Barclays Wealth, said the loss of the U.S.' triple-A rating "may lead investors to feel that the world is suddenly a riskier place," he said in a research note.


"But since the downgrade contains no new information about how risky the world is -- only that a rating agency decided to opine on Friday that the world was riskier than they'd previously said it was -- this effect should be ephemeral," he added.

 

Gold prices shot to an all-time high, rising above $1,700 an ounce earlier today as economic fears triggered a flight to quality. Gold for December delivery was up by $48.30 at $1,700.10 an ounce.

 

Investors were still turning to Treasuries despite the U.S. downgrade. The benchmark 10-year Treasury jumped 1 24/32, diluting the yield to 2.368%. The dollar strengthened against a basket of currencies, with the dollar index up by 0.3%.

 

Oil prices sank below $84 a barrel. The September crude oil contract was shedding $3.41 to trade at $83.47 a barrel.

 

The U.S. credit rating downgrade was overshadowing the European Central Bank's announcement late Sunday that it will "actively implement" its bond-purchase purchase program to stem fears that Italy and Spain will be unable to repay their debts.

 

The FTSE in London was dropping 2.3%, and the DAX in Frankfurt was losing 2.8%. Hong Kong's Hang Seng declined 2.2%, and Japan's Nikkei also closed 2.2% lower.

 

"We've been down 10 of the past 11 sessions, and we're down about 14% over the last 11 sessions. In the postwar era, that's nearly unparalleled," said BTIG Chief Global Strategist Dan Greenhaus, calling Monday's market action a "bloodbath."

 

Energy stocks and conglomerates were getting hit the hardest, with Caterpillar (CAT) and General Electric (GE) among the Dow's biggest laggards. Bank of America (BAC) was putting in the weakest performance.

 

Consumer staples were seeing the mildest losses, with Procter & Gamble (PG), Coca-Cola (KO), Kraft Foods (KFT), Johnson & Johnson (JNJ) and Wal-Mart (WMT) trading near the top of the Dow.

 

The market was a sea of red with 93% of the 2.5 billion shares trading on the New York Stock Exchange trading lower while only 7% were rising. There were 988 million shares changing hands on the Nasdaq.

 

In corporate news, insurer American International Group (AIG) plans to sue Bank of America (BAC) for losses on more than hundreds of mortgage-backed securities, The New York Times reported. The suit seeks to recover more than $10 billion in losses on $28 billion of investments. AIG's stock was losing 6.3% to $23.51 and Bank of America's stock was down 8.9% at $7.44.

 

Rio Tinto (RIO) and Japan's Mitsubishi on Monday offered to buy the shares that they don't already own in Australia's Coal & Allied Industries. The offer of 122 Australian dollars ($126.50) a share values Coal & Allied, Australia's sixth-largest coal mine, at 10.6 billion Australian dollars ($11 billion). Rio Tinto is Coal & Allied's largest shareholder, with a 75.71% stake. Mitsubishi holds 10.2%. Rio Tinto shares were down 4.3% at $56.70.

 

Reinsurer Transatlantic Holdings (TRH) announced Sunday that it received a $3.25 billion buyout offer from National Indemnity, a unit of Warren Buffet's Berkshire Hathaway (BRK.B). The offer of $52 for each outstanding share represents a 15% premium to Transatlantic's Friday closing price. Transatlantic Holdings shares were up 7.9% at $48.82, while Berkshire shares were down 0.6% at $70.80. 

Forty-five thousand VerizonCommunications (VZ) workers from Massachusetts to Washington, D.C., went on strike Sunday after negotiations with union officials failed to yield a new labor contract for more than one-fifth of the company's work force. Verizon's stock was losing 1.9% to $34.36.

655Comments
Aug 8, 2011 10:35AM
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This is what America needs Congressional Reform Act of 2011

1. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present and future) participates in Social Security.
All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

 

Don’t forget congress’s Cadillac health care paid for by the American Tax Slave. Put them all in Medicare. Only then will they have enough life experience to make informed decisions on the subject. Put everything on the table should mean put everything on the table.

Aug 8, 2011 12:39PM
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We need term limits in the House and Senate,  get rid of these people that are not in touch with reality!

Aug 8, 2011 7:58AM
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rant cont...

So you must ask yourself, have the establishment Dems done anything meaningful in the last 40 years to help solve these budget and debt problems?  Or have they only made the problems worse?  Have the establishment Repubs done anything substantive to cut spending or start paying off the debt?  Or have they only made the problem worse? 

The mainstream, establishment Repubs and Dems are directly responsible for these fiscal debacles.  And if you keep voting for them and their preferred candidates, you are part of the problem!  And if you insist on being part of the problem, that's fine, but don't be surprised when your input and opinions are brushed aside.  We don't have time for petty, meaningless, partisan (D) vs (R) bickering anymore - the future of the Republic is at stake.  And quite frankly, both of these entities, as they stand now, have proven themselves to be incapable and untrustworthy when it comes to envisioning and planning the future of our once great nation.  We can return to a position of strength and greatness, but we can't do it with the same political parties that spent the last hundred years or so creating the mess we currently find ourselves in.


Aug 8, 2011 8:35AM
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A week ago Oil was was at $100/barrel and gas was averaging $3.70/gal.  Oil is now at $83/barrel and gas has dropped 10cents/gallon.  Don't I get a free tube of K-Y with that fill up?!?!?
Aug 8, 2011 11:03AM
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people, this is what we get for putting people in office that should never be there in the first place..............Angry
Aug 8, 2011 10:52AM
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I used up all my  401K after I used up my 99 weeks of unemployment , after I pay the 10 % penalty for doing that maybe I can go back to school ,get some student loans which I can not getout of even when I file BANKRUPCY ,from my homeless shelter after I go to my local food bank to eat because I lost my home due to FORCLOSURE and I  cant get FOOD STAMPS because the ILLEGALS have all the houses and the foodstamps used up  
Aug 8, 2011 9:27AM
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This is what type of government we get when there is no choice when it comes to electing our "representatives".  Millionaires with portfolios rich in oil, chauffeurs, 3 and 4 vacation homes.. no term limits....oh ya, I feel truely represented by these people.  Time to break out the big broom.  Time to declare our "independence" from these losers that are sending our once great country down the tubes.

 

The market is open...let the games begin!

Aug 8, 2011 11:36AM
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We live in interesting times...

 

It has taken me seventy five years to realize -- finally -- just how stupid the people are who run governments throughout this world --- including our own.

Aug 8, 2011 11:01AM
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All this talk about deficit cuts!!! Here's a start, stop giving contracts to the Middle East to fking build OUR battleships, stop outsourcing every known job to India and China, stop giving billions of dollars of aide to foreign countries to due catastrophes and lack of self sustainability. Charity starts at home and its a fking goddamn shame to see homeless on our streets when we are giving billionssss to foreign countries. Ya know, its just hard to be President and or elected congress when they don't know ****. How can you fight poverty when you have never been broke, how can you tackle health care when you never been uninsured, how can you fight crime when you have never lived in the Ghetto? Its time we rethink how we run this glorious country!
Aug 8, 2011 10:00AM
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This is what America needs Congressional Reform Act of 2011

1. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present and future) participates in Social Security.
All funds in the Congressional retirement fund move to the Social Security system immediately.All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen are void effective 1/1/12.
The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

Aug 8, 2011 11:04AM
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Reality...

1980: Ronald Reagan runs for president, promising a balanced budget

1981 - 1989: With support from congressional Republicans, Reagan runs enormous deficits, adds $2 trillion to the debt.

1993: Bill Clinton passes economic plan that lowers deficit, gets zero votes from congressional Republicans.

1998: U.S. deficit disappears for the first time in three decades. Debt clock is unplugged.

2000: George W. Bush runs for president, promising to maintain a balanced budget.

2001: CBO shows the United States is on track to pay off the entirety of its national debt within a decade.

2001 - 2009: With support from congressional Republicans, Bush runs enormous deficits, adds nearly $5 trillion to the debt.

2002: Dick Cheney declares, “Deficits don’t matter.” Congressional Republicans agree, approving tax cuts, two wars, and Medicare expansion without even trying to pay for them.

2009: Barack Obama inherits $1.3 trillion deficit from Bush; Republicans immediately condemn Obama’s fiscal irresponsibility.

2009: Congressional Democrats unveil several domestic policy initiatives — including health care reform, cap and trade, DREAM Act — which would lower the deficit. GOP opposes all of them, while continuing to push for deficit reduction.

September 2010: In Obama’s first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama’s fiscal irresponsibility.

October 2010: S&P endorses the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.

November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.

December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.

March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.

July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.

August 2011: S&P downgrades U.S. debt, citing GOP refusal to consider new revenues. Republicans rejoice and blame Obama for fiscal irresponsibility.

Aug 8, 2011 11:37AM
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TIME OUT what happened to the housing market are all the foreclosures over ?? are all the wars over ?? ,did we stop all foreign aid ?? is the ECONOMY ok now ?? we have a new debt ceiling ,more BAILOUTS coming ?? pay raises for all CEO'S ,pay raises for all Congressmen &  Senators ,when will all the BS stop ??
Aug 8, 2011 9:04AM
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Those who are taking from the government trough want to blame anyone - S&P, the Tea Party, Republicans, Bush, Obama, anyone,  No one wants their ox gored.  We better all get ready because we have too many oxen, and like it ir not the party is over.  We need to do something except complain, for God's sake.  The people who pay no taxes need to start shouldering some of the burden.  We need to let businesses grow and not think of ways to reign them in. We need to have term limits so these bozos will care more about doing what is right for their country instead of being re-elected.   I have never been so worried about this country as I am now, and I have been through some scary times here.  Gear up, buckos.
Aug 8, 2011 11:39AM
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OK guys, a quick poll:

 

Use the THUMBS UP for RON PAUL, and the THUMBS DOWN for OBAMA.

 

Would you vote for RON PAUL over OBAMA if the election were held TODAY????

Aug 8, 2011 8:36AM
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Oil about $83 .

So I should go down the block today (NY)and gas will be  $2.85 Gal.Reg.  Yea right!!!

So lets see , Goes up .50 Cents a barrel , pump price goes up by .25 a gallon. Oil goes down $15.00  a barrel, pump price goes down?  .5 Cents,  Now I get it.
So Us dollar loses value and oil goes down?? thought it was the other way around? O wait it is?? no wait it is not?   

The "Three card Monty" is just about done for Obamanation and other countries around the world.
Aug 8, 2011 9:16AM
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Divide and conquer has always worked. Look at history and how the British empire controlled huge populations after taking over their countries. They pitted different religious groups and different socio economic groups against each other while they were stealing all their natural resources and using the people as slave wage labor.
The bottom line is look at who is making a profit from all this and you will see who is truly responsible.
Mark
Aug 8, 2011 12:46PM
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this year my wife and i will pay about 40k in fed withholding, 10k in social security and 3000

in medicare taxes?? for what??  you may argue that  the federal taxes military, etc, etc.

ok.. now over 30 years 300k plus interest in social security and 90k plus interest in medicare..

 

-first of all the working people of all classes are being robbed, period.. i don't mind giving and helping others. but don't borrow from social security and run medicare like a business.

 

-how long before the new 35-52 generation (what used to be baby boomers) just revolt..

all we hear is work till we are 70, no social security, downgrade Fannie Mae, etc etc.

No crap.. of course our debt is worth nothing when we lend money to people who can't

afford to own things, we print money to cover a budget sheet that doesnt balance, and

we finance 2 wars.

we see our parents in their 70's retired with pensions etc, but with state and federal

governments bankrupt, they may be a thing of the past.

 

i'm not complaining at all, b/c america continues to work because of the spirit of the amercian

people and service people, but when are we going to wake up as individuals and realize,

that we are being robbed by our government, wall street, politicians, and wall street.

how are we as INDIVIDUALS going to change this?

Aug 8, 2011 10:45AM
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To disillusioned101

 

I totally agree with you.  If those in Congress had to live like us middle class people, pay into their own 401k, have the same help care and pay for it also they might have a different attitude and understand our frustations.  They should not be able to give themselve raises, they should have the same health care we have and have to pay for it, and they should not get pensions for life.

It totally BS that they get a free ride on our tax dollars.  Get them on a 401k plan like the rest of us and we might see the changes that are necessary to balance this budget and stablize the stock markets.

 

Aug 8, 2011 7:45AM
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So NOW are you guys ready to take the Tea Party seriously?

 

They tried to warn you.......

 

Today could be EPIC.  And not in a good way.

 

This is what you all asked for....... so sit back and enjoy!!!!

Aug 8, 2011 12:27PM
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This is why the trickle down effect they planned with the bail out back a few years ago was a big fail...AIG and a bunch of others just blew that money . If they would have gave the american tax payers the money almost ever mortgage and loan dept in the country could have got paid off and these companies would not have needed a bail out. well it would have been a bail out but in just the opposite direction. trickle up effect which would have let our citizens get out of dept with these companies,not losing there homes and other things removing them from being in debt and the companies providing the loans would have received their pay offs helping out the economy as a whole. From corporate to the citizens. Most of the dept would have vanished. why am i the only one who see's this. I thought our government was in place to protect and benefit our citizens. Not the big money embezzling companies we call corporate america...I think if these companies should have to show quarterly reports to show a count for all their earnings so we may see where all the american money is vanishing to.I do know one thing that could help...Require anyone who is using western union or money gram to have a american citizenship..All this money I see getting sent out of the country by illegal aliens is obserd..some one needs to pull those records from money gram and western union so we can see how much of this money is being sent out of our economy. I know its a lot cause every time i go by Wal-Mart or a Western Union there is always a bunch of mexicans sending money to mexico. Really bad part about it is most of these people work under the table paying no taxes as well..so you got tax free money leaving the country every day..what the hell?

 

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